Chipotle Mexican Grill Incorporation - Essay Sample

Abstract

Chipotle Mexican Grill Incorporation, an American corporation that has expanded on a few other international markets is one of the market leaders in the fast-food industry. Its success is built on the differentiation strategy and unique business model. The company emphasizes customer service and customer satisfaction. This means that employees can undertake many activities that ensure customer service and engagement, which has provided customer loyalty. Besides, its organic foods approach is a crucial pillar towards its success. However, this strategy also presents challenges as the cost of production is quite high. Therefore, the company faces some threats of lower prices in the market, that can lower its profit margins. To achieve its desirable growth, Chipotle Mexican Grill Incorporation should adopt an internationalization strategy to expand in the global market (Michael, 2013).

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Chipotle Case Study Analysis

Introduction

Chipotle Mexican Grill Incorporation is a public company that is based in the United States, with subsidiaries in different countries, including Germany, the United Kingdom, and France. The company was founded as Foods Inc. before it merged and became Chipotle Mexican Grill Inc. The company was founded on a simple philosophy that aimed at demonstrating that food that was served fast did not have a traditional fast-food experience (Yaffe-Bellany 2019). However, this vision has continually evolved over the last couple of years. Currently, incorporation focuses on changing how people perceive fast foods. In this regard, the company has established a unique business model and differentiation strategy that offers a unique approach compared with the traditional restaurants of fast foods. Besides, the company has emphasized the organic as well as the local products, while targeting the market segment of the customers that can afford to pay for high-quality products (Yaffe-Bellany 2019). Currently, the company has a strong market position as demonstrated by its market share, as well as its expansion strategies, and has developed over $639 billion worth over the years (AnnualReports 2018). However, Chipotle Mexican Grill Inc. is also impacted negatively by the concurring fast-casual restaurants that have adopted the same business model. This report seeks to analyze the situational analysis of Chipotle Mexican Grill Inc. and make recommendations based on the findings on the areas the company should exploit to ensure it is a market leader.

Situational Analysis

General Environmental Analysis

Chipotle Mexican Grill Inc. mainly focuses on the market segment of customers between the age of 18 and 24. The company has facilitated customization of its services that have attracted and appealed to the young customers who may not have the financial flexibility to purchase foods from the traditional sit-down restaurants. The company has ensured independence from the global economy regarding the trends of food prices. Considering that the demand for food remains high, it has helped the company to thrive from $239 billion in the 90s to over $631 billion (Financial Times 2019). Through this, the company has been able to expand its operations to other countries. This means that the costs of importation and exportation can have a significant role in its operations. Despite its expansion, it still does not have an overwhelming global presence (Michael 2013).

Porters Five-Force Analysis

• The threat of new entrants.

Despite the industry having a vast ready market, the threat of new entrants that can affect the company is low. While Chipotle Mexican Grill Inc. is worth over $683 billion, it still invests heavily to maintain its high stake in the market (Financial Times 2019). Besides, there is massive competitiveness in the food industry, which means that a lot of capital and differentiator would be needed for a new company to be a significant threat to Chipotle (Oguz 2018).

• The threat of buyer power.

The threat of buyer power in the fast-food industry is medium. It should be noted that the buyers do not have massive power that can drive the prices of meals down, considering that everyone has to feed. Besides, almost everyone eats fast-casual foods occasionally. However, the fact that a buyer can shift from one restaurant to another is what makes their power medium.

• Competitive rivalry.

Many companies have established a significant market share in this industry, making competition to be strong. It can be considered that the casual fast food industry is saturated by players, both micro and macro, all of which can offer massive competition. This means that Chipotle Mexican Grill Inc. must position itself properly to satisfy its clients and acquire a significant market share of loyal customers (Tony 2016).

• The threat of substitutions.

In the fast-food industry, the threat of substitutions is massive. There are many restaurants with other food segments that can easily substitute fast foods. This means that consumers have a variety of options in the market.

• Power of suppliers.

The bargaining power of the suppliers regarding the Mexican fast-casual foods is very high, particularly for the organic, locally produced, and GMO-free products, which are the key drivers at Chipotle Mexican Grill Inc. It has a huge challenge to meet all the requirements and even purchase in huge volumes as desired by the company (Yaffe-Bellany 2019). Considering that the costs that are incurred by farmers in the production of organic foods are quite high, they are likely to demand a high price for their unique products.

Generic Strategy

The company can be seen to have adopted a differentiation strategy that is based on the Blue Ocean strategy. Chipotle Mexican Grill Inc. is conscious of human health, and with increased environmental concerns, the company not only seeks to offer improved human health but also environmental sustainability. This idea of Blue Ocean can be seen to resonate with Porter's generic strategy, as highlighted in the matrix below (Kim & Mauborgne 2004).

Figure 1: Porter's Generic Model for Chipotle Inc. ("Chipotle Mexican grill" 2015).

Environmental Risk Factors and Organizational Context

Chipotle Mexican Grill Inc. is affected by a myriad of environmental, social, and legal factors in its operations. It should be noted that the zoning laws vary between states, while the permits, insurances, as well as other governmental regulations, and impact the business operations meaning that it is not possible to open businesses everywhere across the globe (John 2012). On the industry evolution, the company can be identified to be still on the growth phase of the business lifecycle. It should be noted that the corporation's revenues have continued to grow with notable progress from $1,836 to $4,108 million from 2010 to 2014 (Financial Times 2019). The strategic planning cycle can be illustrated in the figure below.

Figure 2: Strategic Planning Cycle for Chipotle Inc. ("Chipotle Mexican Grill: Analysts Maintain 'Hold' Recommendation" 2016)

An evaluation of the company's strategic planning cycle illustrates that the company focused on adapting the business model it had set. This strategy has evolved gradually over the years, as shown by the expansion of its size of the brand. Therefore, its activities have significantly focused on sustainable activities that can facilitate the development of the brand.

Figure 3: Value Chain Analysis of Chipotle Inc. ("Chipotle Mexican grill" 2015)

Organizational Capabilities and Challenges

SWOT Analysis

• Strengths.

Chipotle Mexican Grill Inc. has numerous strengths that it should build on. Its main strengths lie in its brand image based on the social initiatives in its production. One of the strategies that have distinguished the company and given it, its competitive advantage is their strict policy of organic non-GMO products (Yaffe-Bellany 2019). This is a demonstration that the company is built on quality production and social responsibility. Additionally, the company has adopted social responsibility, thereby ensuring energy efficiency and waste reduction, which have significantly contributed to its positive brand image. These advantages coupled with the fact that Chipotle takes advantage of innovative advertising and marketing strategies, the company has built a brand that facilitates customer loyalty.

• Weaknesses.

Despite its strengths, the company poses some weaknesses and areas that it can improve. For example, Chipotle Mexican Grill Inc. has remained unfranchised, which has presented an opportunity for different individual businesses that must ensure the equivalent of the performance standards as well as quality. Besides, to get high quality organic raw products, the cost is quite high comparatively. This has made its menu expensive, as well as limited.

• Opportunities.

Chipotle Mexican Grill Inc. has numerous opportunities that it should capitalize on. For example, the restaurant can capitalize on expanding its menu to include a variety of products. It should be noted that there has been massive popularity and preference for healthy foods, which is an opportunity for Chipotle to continue exploiting in the market (Yaffe-Bellany 2019). Besides, the company can evaluate the possibility of franchising as a strategic decision making to ensure proper management. Lastly, the company should develop more social responsibility programs to expand its brand.

• Threats.

Competition and fluctuation in the fast-food industry have remained the most significant threats of Chipotle Mexican Grill Inc. The competitors may lower the market prices as they may have lower production costs, thereby affecting the profit margins of Chipotle Mexican Grill Inc. if it decides to lower its...